SoftBank may finalize Snapdeal sale to Flipkart next week, in realignment of India strategy4 min read . Updated: 07 May 2017, 10:07 PM IST
Apart from Snapdeal sale to Flipkart, SoftBank is planning a $1 billion investment in Paytm and pushing for a Grofers-BigBasket merger
Mumbai: After ploughing about $2 billion into minority stakes in Indian e-commerce businesses over the past few years, Japan’s SoftBank Group Corp. is upping the stakes, looking to play consolidator and take a more active role at a trio of leading start-ups.
According to persons with direct knowledge of the matter, the solar-to-tech conglomerate is seeking to secure a piece of India’s industry leaders in everything from payment systems to online shopping and groceries, in a series of deals that would shake up the $65 billion sector.
Among the most high-profile plans is SoftBank’s push to engineer Snapdeal sale to Flipkart, the leader of one of the world’s most competitive online retail markets. The deal could be finalized as soon as next week, one of the persons said.
SoftBank has poured roughly $1 billion into Snapdeal since 2014, but competition in e-commerce has risen dramatically with US giant Amazon.com Inc. cranking up its presence and taking the No. 2 spot from Snapdeal.
Besides Snapdeal, run by Jasper Infotech Pvt. Ltd), SoftBank is also close to finalizing a cash infusion of more than $1 billion into Alibaba-backed digital payments firm Paytm (One97 Communications Pvt. Ltd)—leader in the fintech sector—giving it a more direct say in that group too, according to one person familiar with discussions.
Media reports have separately linked SoftBank to a tie-up between grocery delivery group Grofers, in which it has invested roughly $70 million, and market leader and rival BigBasket.
SoftBank, Snapdeal, Paytm and BigBasket did not respond to requests for comment. A spokesman for Grofers said the company did not comment on merger speculation.
‘Land of opportunity’
At the heart of the push is the charismatic Masayoshi Son, SoftBank’s founder and chairman, the persons said. Son has taken a more active role in the group globally since last year, when he pushed aside his heir apparent, Nikesh Arora.
SoftBank is best-known for its hugely lucrative early stage bet in Chinese e-commerce giant Alibaba Group, in which it is still the single largest investor.
But it has also been a long-time supporter of India - and with some success.
“Son is thinking India is the place where he will create one or two Alibabas," said one of the persons familiar with SoftBank ambitions, adding Son sees the country right now as the “land of golden opportunity".
SoftBank is the biggest investor in India’s leading ride-share player Ola, which competes with Uber, and its top hotel aggregator Oyo. Son and other partners have also pledged to pour $20 billion into solar projects in the energy-hungry South Asian nation.
“They are getting into sectors where the big differentiator, firstly, is going to be technology, of course," said the same person.
“Secondly, also sectors that need large amounts of capital, so you can browbeat or elbow out people with your capital."
A Flipkart-Snapdeal combination would create just such a e-commerce behemoth.
Flipkart, though battling Amazon, has maintained its pole position and last month it raised $1.4 billion from a trio of cash-rich and tech savvy players that include eBay Inc., Tencent Holdings Ltd and Microsoft Corp. It also bought eBay’s Indian operations as part of the deal.
Meanwhile, SoftBank poured cash into Snapdeal, but Son began to lose patience as it was outpaced by Amazon, said a person at Snapdeal and the person familiar with SoftBank’s aspirations.
SoftBank has already begun talks with Flipkart’s largest investor, Tiger Global, to buy a stake, the two persons said.
To push through the tie-up, SoftBank was likely to invest about $1 billion in Flipkart, both via a direct cash infusion and by buying equity stakes in investors such as Tiger Global, another person said, adding that Snapdeal investors were expected to get one Flipkart share for every 10 Snapdeal shares.
Flipkart did not respond to requests for comment, while a spokeswoman for Tiger Global said the hedge fund did not speak to the media about its investments.
Forging all these deals could prove to be a challenge.
One person familiar with the Grofers-BigBasket talks said a deal, while being considered, looked unlikely as BigBasket has a cash-burn rate significantly higher than that of Grofers, making it hard to justify a deal.
Moreover, even if the deals do click, there is no guarantee bets like a Flipkart-Snapdeal combine will pay off.
“In the short-term, yes," said Gartner analyst Sandy Shen. “But things move quickly in e-commerce and Amazon is a strong player with global scale, technology and operational expertise."
Still, a Flipkart-Snapdeal combine is likely to revive hopes of a broader consolidation in Indian e-commerce.
Alibaba had explored the possibility of combining Snapdeal and Paytm’s e-commerce business with Flipkart about a year ago, one of the persons said, but talks broke down over price.
Industry watchers believe that Paytm’s marketplace and Tiger Global-backed ShopClues could eventually fold into Flipkart if the tie-up and Paytm investment goes through. Reuters